Industry News | July 29, 2005

Wendy’s Announces Plans to Sell Part of Tim Hortons Chain

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After pressure from investors to boost stock prices, number three burger chain Wendy’s International announced its plans to offer to the public a stake in its Tim Hortons chain and close, or to sell approximately 450 Wendy’s units.

Wendy’s will sell between 15 and 18 percent of the coffee-and-doughnuts chain, which experts say may raise as much as $828 million. The company is also prepared to sell real estate at 217 franchisee-leased sites, re-purchase an extra $1 billion in shares, and up its dividend by 25 percent.

Earlier this month, Investor Pershing Square Capital Management LP encouraged Wendy’s to spin off Tim Hortons and to convert company-owned units into franchises. According to the plan, a maximum of 60 company-owned stores will close, and approximately 400 could be sold to franchisees. And, the company will use existing money to pay off $100 million of debt.

Within the next two years, the company may also spin off the Tim Hortons brand, says Jack Schuessler, Wendy’s CEO. Furthermore, the company will reduce the number of new store openings from an average of 71 units per year to a maximum of 40 in 2006.

“We really believe the two brands are moving apart,” Schuessler says. “We believe separating the companies are the best actions for both.”

Following the spin-off, Wendy’s shares could be valued anywhere from $64 to $76 each—compared to the $70 a share for Wendy’s and Tim Hortons together, according to Rachael Rothman, analyst for Merrill Lunch & Co. Furthermore, re-franchising could generate up to $1.7 billion for the company.

The plan was unanimously approved by the Board of Directors, and Wendy’s hopes to complete the public offering by the end of the first quarter 2006. Following the IPO, Wendy’s would retain ownership of the remaining 82 to 85 percent of Tim Hortons units. The IPO of 15 to 18 percent the Board decided upon preserves Wendy’s power to complete a tax-free spin-off to shareholders in the future.